How low with Euro Interest rates go?

[Damian85]

It is a balancing act. Yes interest rates need to be low to help stimulate lending and consumption.

However if interest rates are too low for too long, inflation could be the outcome.

If interest rates are too high, this could lead to a continued freeze in the credit markets.

If interest rates are kept artificially too low for too long, then this is simply proping up what ever is left of a consumption bubble.

If they are too high, it would be too big a shock and serve as an effective death sentence on businesses and consumers.

 

[UptheDeise]

So we raise interest rates as a punishment or something?

I am sorry but I just can't see the logic to the argument. You say you want interest rates to be high so people will save more so banks will lend to business. And yet you seem to forget that high interest rates mean high business loan rates. Higher mortgage and credit card repayments by individuals means less spending (and saving) and therefore less consumer demand. Also bad for business but you seem to think this a good thing because we had a bubble. I agree that everyone from individuals to companies to banks need to deleverage but raising interest rates in the middle of the biggest recession in 80 years and the threat of deflation hanging in the air is not the way to go about it.

I never said we should raise the interest rates. We should let the rates probably stay at the same level. Incidentally both the British and Americans are printing money. This 'extra' money will dilute the existing money supply and eventually lead to unbelievable higher rates of inflation coupled with even higher interest rates. You've been warned. *Gulp*.

 

[Sunny]

I never said we should raise the interest rates. We should let the rates probably stay at the same level. Incidentally both the British and Americans are printing money. This 'extra' money will dilute the existing money supply and eventually lead to unbelievable higher rates of inflation coupled with even higher interest rates. You've been warned. *Gulp*.

And Europe will be doing it before long. I agree that high inflation seems inevitable for no other reason than Governments will have massive debts to pay off by the end of this cycle and although they will deny it, as long as it doesn't turn into a bushfire, they will welcome it.

We are in completely unchartered water here. Nobody has ever really attempted what the UK has attempted this week and I know people have tried comparing it to Zimbabwe and pre war Germany but that's a pointless attempt at headline grabbing. Its all fun and games though!

 

[Bronte]

I wonder when they will start to pay us to borrow?

 

[Damian85]

I wonder when they will start to pay us to borrow?

If you can lock in interest rates at a fixed rate over a medium to long term and if the level of inflation is higher, then you are effectively paid to borrow.